Another steady quarter
MLT’s 3QFY3/22 DPU rose 5.8% YoY/ 0.6% QoQ, helped by higher rental income and contributions from acquisitions in South Korea, Australia and Japan. We fine-tune our estimates to factor in its recent deals, as SGD1.1b of assets in China, Vietnam, and Malaysia are set to expand AUM by c.10% to SGD12.7b by end-Mar 2022E. DPU visibility remains strong, underpinned by resilient occupancies from steady demand growth, and upside to rents in FY23E, for its well-placed logistics AUM. Management is eyeing further
deal momentum to drive AUM growth, and upping its pace of divestments against tightening cap rates. Our DDM-based TP (COE: 5.7%, LTG: 2.0%) stays at SGD2.35. BUY.
Better reversions, especially in Japan
Revenue and NPI rose 19.3% YoY and 17.4% YoY, with higher contributions from existing properties, acquisitions, and lower rental rebates. Portfolio occupancy was stable at 97.8%, as higher occupancies in Japan (from 99.7% to 99.9%), Hong Kong (99.7% to 99.9%), and South Korea (98.4% to 98.8%) offset a dip in Malaysia (100% to 99.1%). Its portfolio rental reversion was stronger at +2.5% (versus +2.4% in 2QFY22 and +2.2% in 1QFY22), led by leases in Vietnam (at +4.0%), Malaysia, South Korea and Japan (all +3.0%),
Hong Kong (+2.9%) and China (+2.8%). Management believes its reversions in Japan, which rose from +1.5% in 2QFY3/22 could be sustained.
Strong leasing momentum
Leasing activity remained strong at c.339k sqm (79% of all expiring leases and 5.0% of its portfolio) renewed or replaced during the quarter, versus c.541k sqm in 2QFY3/22 and c.391k sqm in 1QFY3/22. Single-asset expiries over FY23-24 are low at 2.4-6.0% while WALE (by NLA) was stable at 3.6 years (versus 3.7 years in 2QFY3/22). We expect occupancy to remain resilient, as demand continues to be led by e-commerce tenancies and 3PLs, and we see room for rental recovery to strengthen in coming quarters.
Sound balance sheet, upping pace of divestments
Gearing fell to 34.7% from 38.4% as of end-Sep 2021, following the SGD693m EFR and SGD400m perps issuance, but will rise to 39.1% in 4Q22 with completion of recent deals. MLT continues to eye accretive
acquisitions, but sees challenges from rising cost of capital and tight cap rates for stabilised assets, and could focus on higher-yielding new developments with potentially better growth. Management expects to accelerate divestments in the coming months (at SGD200-400m), and announce details for its 4th Singapore redevelopment project.